(Corrects final paragraph to reflect that $655 bln figure refers to inflows)

By Katanga Johnson

WASHINGTON, June 28 (Reuters) - The U.S. securities regulator on Thursday voted unanimously to propose easing its rules for approving low-risk exchange-traded funds (ETFs) in what could potentially be a major win for the $3.5 trillion market.

The Securities and Exchange Commission (SEC) five-member commission voted 5-0 to propose a rule to allow companies that sell ETFs to launch plain vanilla versions without first seeking approval from the regulator. The SEC said it hopes the rule change will boost competition and innovation by lowering the barriers to entry.

The rule change, subject to feedback from the industry, would apply to open-ended ETF, a type of mutual fund that does not have restrictions on the amount of shares it can issue, which covers the vast majority of ETFs today.

The dozens of ETF companies currently operate under different requirements in a complex system they say has inadvertently allowed some firms to gain a competitive advantage.

Under rules, ETF issuers must get SEC permission, known as exemptive relief, before selling funds under the Investment Company Act of 1940.

Todd Rosenbluth, director of ETF & mutual fund research at CFRA Research, said the proposed rule change could “support new ETF launches, particularly tied to long-term thematic approaches, from small independent asset managers.”

He added that established active mutual fund firms such as T Rowe Price and Capital Group were “unlikely to end their absence from the ETF market.”

BlackRock Inc and Vanguard Group accounted for more than 60 percent of the record inflows of $655 billion that entered ETFs globally in 2017, according to Morningstar Inc. (Reporting by Katanga Johnson in Washington; Additional reporting by Michelle Price in Washington; Editing by Tom Brown and Jeffrey Benkoe)